Why American Consumers Will Spend Lavishly Again

The “new normal” — the idea that when income, credit and confidence return, Americans will not return to our free-spending ways — is an idea on the march, recruiting everyone from PIMCO CEO Mohamed El-Erian to Wal-Mart CEO Mike Duke. It’s spreading so fast it threatens to become the new orthodoxy.

I believe the argument is flawed. When Mike Duke says, “[P]eople are saving more, consuming less, and being more frugal and thoughtful in their purchases,” he is right in the short term, but wrong in the long term. When income, credit, and confidence return, consumers will party like its 1999.

We’ve never had a good explanation for why consumers consume. So when they stop consuming, it’s easy to think they will never start again. If pressed, we say consumption is about vanity, status, greed, cheap money and the consumers’ own brand of irrational exuberance. Even in good times, we keep expecting consumers to come to their senses. In tough times, we think, but of course they will. A new normal is inevitable.

But it’s wrong. As a classically trained anthropologist, I have spent many years doing ethnographic research in American homes. This represents hundreds and hundreds of hours of careful listening, two hours at a time. I know the American consumer as few do.

Let me introduce you to Susan Householder.* Here she is, standing in the entrance of her garage in a middle class suburb of Ridgefield, New York. She is surveying a mountain of stuff: bicycles, toboggans, a work bench, exercise equipment, canned goods, Christmas decorations, a picnic hamper, board games, lots of wrapping paper, several boxes of stem ware, and lots and lots of containers, contents unknown. There’s so much stuff here, this ceased to be a garage a long time ago. It’s now a storage locker, Susan’s very own U-Store-It. (Cars are consigned to the drive way.) If we wanted a monument to all the spending Susan did in the 00s, this is it.

What created this mountain of stuff? Was it irrational exuberance and cheap money? It was not. This crowded garage springs from cultural motives. These things were not purchased to express vanity or pursue status. They were purchased to help Susan build a life.

Susan’s been listening to Martha Stewart, so she now celebrates Christmas, Thanksgiving and birthdays with more formality, and yes, more stuff. Like everyone, she is cultivating new ideas of childhood for her kids and this requires another great wave of stuff. In the 18th century, the average American child had a wooden toy and an iron hoop. Susan’s kids need many more things, including soccer boots, Karate outfits, paint kits, building blocks, skateboards, Xboxes, iPods, cell phones, and a ton of games and books.

Susan’s biggest recent expenditure is the “great room” she and her husband installed a couple of years ago. Like millions of other Americans, Susan created one large, sumptuous room by combining her living room, dining room, and kitchen. It cost $45,000, a princely sum for this household, but it caused Susan not a flicker of remorse. After all, she has a new idea of entertainment. Susan had tired of being a “servant in my own home.” When entertaining friends, she was forced to ferry food to and from the dining room, missing half the conversation, working as her own household staff. Now her guests sit at around the island in the great room, glass of wine in hand, looking on while Susan cooks brilliantly beneath halogen lighting. From 2005 to 2007, expenditures on interior renovation in American homes rose about 40 percent to $13 billion. Much of this was driven by Martha and the great room.

We could say this is irrational consumption, but actually it has a deeper, culture motive. Susan is fashioning her social life. To be sure, there is status seeking here. But there is also something richer and more cultural, as Susan works out new ideas of the “host,” “guest” and “entertainment.”

Susan has her eye on a purse by the designer Kate Spade. It’s called the Cornelia Street Noel Blair and it costs $425. Susan has many purses, around 20 of them. So she doesn’t need this bag…at all. This must be all about vanity, status and greed.

Not really. Susan loves this bag because it captures a concept of the person she thinks she might be becoming. Kate Spade has a positive genius for plucking new signals out of the noise of culture and turning them into something a woman can own, wear, and become. This is a luxury purchase in so far as it costs vastly more than a container needs to. But what makes it valuable for Susan is that it contains the idea of who she wants to be.

Right now Susan is hunkered down. She and her husband have scaled back expenditure. But this much is clear: The cultural motives of Susan’s consumption have not changed. When circumstances allow, she will return to spending enthusiastically to fashion her children, her family, and herself. The “new normalists” missed one thing. Susan has real and substantial motives for spending. When income, credit, and confidence return, she’s going to start spending again.

*Susan is a compilation of several consumers I have interviewed.

Grant McCracken holds a PhD from the University of Chicago in cultural anthropology. He is the author of Culture and Consumption, Culture and Consumption II, Plenitude, The Long Interview, Flock and Flow, and Transformation. He has been the director of the Institute of Contemporary Culture at the Royal Ontario Museum, a senior lecturer at the Harvard Business School, and a visiting scholar at the University of Cambridge, and he is now a research affiliate at C3 at MIT. He has consulted widely in the corporate world, including the Coca-Cola Company, Diageo, IBM, IKEA, Chrysler, Kraft, and Kimberly Clark. He has served on marketing advisory boards for IBM and the Boston Beer Company. Basic Books will publish his new book, Chief Culture Officer, on December 1 this year.

Partner Center

The email and password entered aren’t matching to our records. Please try again, or reset your password. If you have a username from our previous site, start by using that. Please See our FAQ for more.

If you are signing in for the first time on the new HBR.org but have an existing account, please enter your existing user name and password to migrate your account.Please see Frequently Asked Questions for more information.